<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
AUGUST 31, 1996
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 33-5384
DERMARX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3301899
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 COLORADO BLVD., SUITE 420
DENVER, COLORADO 80206
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (303) 333-4600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
7,225,969 shares (as of July 1, 1996) of common stock, par value
$.01 per share.
<PAGE>
DERMARX CORPORATION
INDEX
Page
No.
Part I. Financial Information
Item 1. Financial Statements 1
Balance Sheet - August 31, 1996 1
Statements of Operations - 2
Three Months and Six Months Ended August 31, 1996
and 1995
Statements of Cash Flows - 3
Three Months Ended August 31, 1996 and 1995
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis 5
of Financial Condition and Results of Operations
Liquidity & Capital Resources 6
Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities 7
Holders
Exhibits and Reports on Form 8-K 7
Item 6. Signature 8
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
DERMARX CORPORATION
BALANCE SHEET AUGUST 31, 1996 (Unaudited)
ASSETS
<S> <C>
Current assets:
Cash $293,878
Accounts receivable 10,415
Inventory - Finished goods 113,278
Prepaid expense 17,605
--------
Total current assets 435,176
--------
Property and equipment, net of accumulated
depreciation of $3,754 $16,551
--------
Other assets:
Patents, net of accumulated amortization of $35,439 115,252
$35,439
--------
Total Assets $570,265
========
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficiency)
Current liabilities:
Note payable - bank $2,881
Notes payable - other 0
Accounts payable and accrued expenses 41,928
Accrued interest - notes payable 0
-------
Total current liabilities 44,809
-------
Long-term debt:
Notes payable - net of discounts 34,003
Note payable - related party, net of 48,780
discounts
Accrued interest - note payable 4,258
Accrued interest - note payable, related 6,801
party
-------
Total long-term debt 93,842
-------
Commitments and Contingencies
Contingent liability 224,334
-------
Total long-term debt commitments and 318,176
contingencies -------
Common stockholders' equity (deficiency):
Common stock, $.05 par value: 8,000,000
shares authorized;
7,225,969 shares issued and outstanding 361,298
Additional paid-in capital 3,955,745
Accumulated (deficit) (4,109,763)
----------
207,280
----------
$570,265
==========
See accompanying notes to the financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DERMARX CORPORATION
STATEMENTS OF OPERATIONS
Three Months Six Months
Ended Ended
August 31, August 31,
1996 1995 1996 1995
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales, net of discounts $7,383 $16,751 $13,143 $32,126
7,383 16,751 13,143 32,126
Cost of goods sold (2,844) (4,808) (4,642) (10,071)
------- ------- ------- --------
Gross profit 4,539 11,943 8,501 22,055
------- ------- ------- --------
Expenses
Management consulting 2,000 25,000 2,000 50,000
Research & development 14,458 - 32,178 -
Business development 42,748 - 87,491 -
Professional fees 1,600 8,881 6,873 15,050
Interest expense 5,961 8,850 11,989 17,989
Depreciation and amortization 4,352 2,215 8,343 4,855
Legal 11,820 6,503 18,064 20,269
Marketing 13,206 4,739 40,181 9,739
G&A employee salaries 49,113 25,243 99,561 50,564
General and administrative 28,083 7,891 43,485 29,786
Other 9,290 707 12,039 7,207
------- ------- ------- -------
184,326 90,029 372,204 205,459
------- ------- ------- -------
Interest Income 5,850 - 12,490 -
Net (Loss) from continuing (173,937) (78,085) (351,213) (183,403)
operations
Net (Loss) from discontinued
operations - - - -
--------- -------- --------- ---------
Net (Loss) attributable to (173,937) (78,085) (351,213) (183,403)
common stock ========= ======== ========= =========
Net (Loss) per common share:
From continuing operations $(.02) $(.02) $(.05) $(.04)
From discontinued operations
------ ------ ------ ------
$(.02) $(.02) $(.05) $(.04)
Weighted-average number of 7,139,166 4,107,196 7,139,166 3,867,713
common shares outstanding
See accompanying notes to the financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DERMARX CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended
August 31
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($351,213) ($183,403)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Accounts payable, accrued expenses and 8,680 -
accrued interest converted to common stock
Amortization of discounts on notes 13,218 5,244
Expenses paid by Issuance of - -
stock
Depreciation and amortization 6,842 4,855
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable (4,721) (10,065)
(Increase) Decrease in inventory (50,601) 10,071
(Increase) Decrease in other assets (4,952) (381)
Increase (Decrease) in accounts payable, (28,558) (17,209)
accrued interest and accrued expenses
Increase (Decrease) dividends in arrears - -
---------- ---------
Net cash (used) by operating (411,305) (190,888)
activities ---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (7,209) -
---------- ---------
Net cash (used) by investing activities (7,209) -
---------- ---------
Cash flows from financing activities:
Net Proceeds of equity sale - 263,750
Net proceeds from debt obligations - -
Purchase Treasury Shares - -
Repayment of debt obligations - (4,000)
---------- ---------
Net cash provided by financing activities - 259,750
---------- ---------
Net increase in cash and cash equivalents ($418,514) $68,862
Cash and cash equivalents, March 1, 1996 $712,392 5,730
---------- ---------
Cash and cash equivalents, August 31, 1996 $293,878 $74,592
========== =========
See accompanying notes to the financial statements.
3
</TABLE>
<PAGE>
DERMARX CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS
The balance sheet as of August 31, 1996, the statements of operations
for the six months ended August 31, 1996 and 1995 and the statements
of cash flows for the six months ended August 31, 1996 and 1995 have
been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments), necessary to present fairly the financial position,
results and cash flows as of August 31, 1996 and for all periods
presented have been made. The results of operations, for the six
months ended August 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
its fiscal year ended February 29, 1996, which was filed with the
Securities and Exchange Commission.
4
<PAGE>
DERMARX CORPORATION and SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's revenues decreased to $7,383 in its fiscal
quarter ended August 31, 1996 from $16,751 in its fiscal quarter
ended August 31, 1995, a decrease of $9,368. This decrease is
attributable to a decline in the sales of Bottom Better as all sales
efforts have been halted on the product while a marketing partner is
sought. The Company does not expect and appreciable increase in
revenues until its distribution network for the wound care line is in
place. Limited resources have been devoted to marketing and only two
of the four new products in the would care line were available for
sale. The Company's costs of goods sold as a percentage of revenues
decreased to 39% from 29% in the three months August 31, 1996 as
compared to the comparable period one year ago. Total expenses were
$184,326, an increase of $94,297 from the comparable period one year
ago. This increase is primarily attributable to expenses incurred in
clinical evaluations, R&D and to additional expenses in overhead
resulting from increased personnel and new operating headquarters.
Interest expense decreased by $2,889 for the quarter ended August 31,
1996, compared to the same period in 1995. For the second quarter of
fiscal year 1996, the Company had a net loss of $173,937, or $.02 per
share as compared to a net loss of $78,085, or $.02 per share for the
previous comparable period.
The primary focus of the Company has been on establishing
distribution for the newly developed line of would care products.
The Company is negotiating with several potential distributors and
anticipated a distribution network to be in place throughout the U.S.
by year end. The Company is continuing to seek a consumer oriented
partner to market its diaper rash product. Boots, the Company's
Australian distributor, has recently applied for regulatory approval
with the TGA. Shipments are expected to begin in Australia following
the receipt of TGA approval. The first of a series of marketing
seminars is scheduled in San Diego for the 18th of October. Patent
and 510(k) applications have recently been filed on the Company's
newest product DermaMend Gel, an amorphous hydrogel.
A clinical evaluation was completed on the polyurethane foam
products at Henry Ford Hospital in Detroit in August 1996. A poster
incorporating the results is being prepared for presentation at the
Academy of Dermatology in San Francisco in March 1997.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its capital requirements to increase
significantly as the Company begins to actively market its products.
The ability to secure additional working capital and the ability to
obtain successful distribution for its products are reasonably likely
to have a material impact on the Company's short-term or long-term
liquidity. There are no guarantees that the Company will be
successful in the necessary fund raising activities. Failure to
raise sufficient working capital threatens the Company's near term
viability.
6
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITIES HOLDERS
There was no matter submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the fiscal
quarter ended August 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
7
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DERMARX CORPORATION
(Registrant)
Dated: October 28, 1996. /S/ Maryanne Carroll
-----------------------
Maryanne Carroll,
Chief Executive Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> AUG-31-1996
<CASH> 293,878
<SECURITIES> 0
<RECEIVABLES> 10,415
<ALLOWANCES> 0
<INVENTORY> 113,278
<CURRENT-ASSETS> 435,176
<PP&E> 20,309
<DEPRECIATION> 3,754
<TOTAL-ASSETS> 570,265
<CURRENT-LIABILITIES> 44,809
<BONDS> 318,176
<COMMON> 361,298
0
0
<OTHER-SE> (154,018)
<TOTAL-LIABILITY-AND-EQUITY> 570,265
<SALES> 13,143
<TOTAL-REVENUES> 13,143
<CGS> 4,642
<TOTAL-COSTS> 4,642
<OTHER-EXPENSES> 372,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (351,213)
<INCOME-TAX> 0
<INCOME-CONTINUING> (351,213)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<NET-INCOME> (351,213)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<CHANGES> 0
</TABLE>
